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Take-Two (TTWO) Hits 52-Week High: What's Driving the Stock?

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Share price of Take-Two Interactive Software, Inc. (TTWO - Free Report) rallied to a new 52-week high of $95.11, eventually closing a tad lower at $94.95 on Aug 22. The stock has rallied 92.6% year to date, substantially outperforming the 48.1% gain of the industry it belongs to.

The stock price momentum can be attributed to consistent results. We note that the company has beaten the Zacks Consensus Estimate in the trailing four quarters, delivering an average positive surprise of 107.07%.

We note that increasing digital revenues and strength in franchises like Grand Theft Auto and NBA 2K are primarily responsible for this strong growth. These factors are expected to help the stock sustain the momentum going ahead.

Currently, Take-Two carries a Zacks Rank #3 (Hold). The company has a market capital of $9.69 billion and a long-term expected earnings growth rate of 14%.

Franchise Strength, Digital Revenues - Key Catalysts

Take-Two, one of the leading names in the video game publishing arena, continues to benefit from its popular offerings like Grand Theft Auto V and Grand Theft Auto Online, along with its other releases like NBA 2K and WWE 2K. In fact, higher sales of the digital version of the games add to the company’s margins.  

Moreover, the company anticipates continuous growth in digital revenues driven by higher sales of full game downloads and increases in recurrent consumer spending.

Additionally, Take-Two’s acquisition of game developer, Social Point is expected to boost its performance. Management expects Social Point to contribute 6% of net revenue in the current fiscal.

Also, the company’s foray into the fast emerging e-sports market is a positive. In February this year, Take Two inked a deal with NBA to launch NBA 2K eLeague, which will be functional in 2018. We believe this will enable the company to grab a share of the growing e-sports industry and boost its top line.

However, stiff competition from other game makers such as Activision Blizzard Inc. (ATVI - Free Report) , Electronic Arts (EA - Free Report) and Glu Mobile Inc. (GLUU - Free Report) remains a major concern.

Outstanding Q1 Results, Solid View

Take-Two reported first-quarter fiscal 2018 earnings of 60 cents per share which came in much better than the Zacks Consensus Estimate of 20 cents. The strong earnings performance was driven by higher net sales (excluding deferred revenues) of $348.3 million, which also beat the Zacks Consensus Estimate of $287.1 million.

For the second quarter, the company expects GAAP net revenue to be in the range of $400–$450 million. The company projects earnings in the range of 15–25 cents per share.

For fiscal 2018, the company has increased its outlook for net sales, which is now projected in the band of $1.65–$1.75 billion compared with the previous guidance of $1.42–$1.52 billion.

Estimate Revisions

The Zacks Consensus Estimate for Take-Two moved up in the past 30 days, which reflects the optimistic outlook of analysts. Earnings estimates for the second quarter increased 29.8% to 74 cents. For full year 2018, the Zacks Consensus Estimate rose 30.3% to $2.19 over the same time frame.

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